The Centers for Medicare & Medicaid Services is proposing to radically change how they pay skilled nursing facilities to care for Medicare patients after hospital stays. Today, under the RUG IV rule and formula, the economic engine of the facility is the rehab department and the fuel for that engine is the volume of minutes of therapy provided by physical, occupational, and speech therapists.
The more minutes of therapy, the higher the payment. Are there unintended consequences from the current model? Of course. I think we’ve all sadly seen examples of cringeworthy decisions and care plans made to capitalize on the current model. With the possible replacement of RUG IV with RCS-1, CMS is not looking to fix the engine. They’re removing it.
As I’ve talked with administrators, nurses, and therapists about RCS 1 over the past couple weeks, the reaction has been consistent:
Blank Stares followed by
Disbelief followed by
Minds Racing to predict the consequences.
1. BLANK STARES – Because it’s a paradigm shift
Most of us have a general idea how the RUG4 formula works for rehab patients: take the minutes and adjust based on some of the ADL (activities of daily living) scores found in the MDS.
The RCS1 formula to determine a daily PPS rate is, at a high level, this is to determine why the patient is admitted to the SNF.
Why is the patient here?
10 categories: Major Joint or Spinal, Non-Orthopedic, Acute Neurologic, Non-surgical orthopedic/Musculoskeletal, Orthopedic Surgery (Except Major Joint), Cancer, Acute Infections, Pulmonary, Cardiovascular & Coagulation, Medical Management
What is the functional status of the patient?
Higher functioning, less dependent = higher score/payment
What is the cognitive function of the patient?
Higher cognition = higher score/payment
Is the patient depressed?
Depressed patients = higher score/payment
What non-therapy ancillary things are going on with the patient?
IV med, Feeding tubes, Dialysis, etc. = higher score/payment
Why pay less for patients that are more dependent? That runs counter to what we’re used to. I speculate the rationale is that the more independent and cognitively sound a patient is, the more therapy they are able to receive.
2. DISBELIEF – What about therapy minutes?
Notice there is zero input for therapy minutes. As RCS-1 is drafted today, the daily rate for that patient is the same whether s/he received 10 minutes or 1,000 minutes of PT/OT/ST. Re-read that sentence as many times as you need to until your mind starts racing. Then read on …
3. MINDS RACING – How will we adapt?
Could RCS-1 mean an unintended windfall for operators? Maybe.
Let’s compare the RUGIV and RCS1 payment for a couple common Medicare SNF patient types. Let’s choose Kansas City as our market.
The source for the RCS-1 rate is from the Zimmet Healthcare Services Group online calculator. I highly recommend Zimmet to anyone in the industry who wants to learn in depth about this and wants to stay on top of the latest changes to reimbursement/regulations. (I have no financial interest in Zimmet.).
CMS is notorious for underestimating operators’ ability to pivot to the changing goal posts. Can you imagine a replay of 2011/2012 when the change to RUG4 resulted in a windfall for savvy operators followed by an immediate cut by CMS to fix it (see Medicare rate chart)? I can.
Keeping the minutes static, the daily profit increases by $177 and $342 for the stroke and joint replacement patients respectively. But the RCS-1 formula begs the question: why would you keep the minutes static? The minutes/RUG thresholds are artificial constructs by CMS. When those thresholds disappear, what does care planning by the PT/OT/ST look like? Will they give more or less? What will the directives be from management?
Can you see the pendulum swinging too far for some organizations that try to cut therapy to the bone since it will become a cost center (financially speaking)? I can.
Plus: How will rehab companies and/or rehab departments change how they care plan? More group/concurrent therapy? More use of aides in the states that allow it? More use of RNAs? More intense rehab during the first half of the stay?
Here’s the thing, love them or hate them, the minutes thresholds provides everyone (management and clinicians) with a framework that encourages therapy to be given but also provides a “governor” on how much therapy is given. What’s the governor or regulator under RCS-1? Patient outcomes. Is that it? Looks that way to me.
Any operator who wants to maintain or grow their Medicare market share must earn it today. Bagels are being replaced by data — length of stay, readmission rates by diagnosis, episodic cost of care, star ratings — to determine short-term patient market share.
RCS-1 doesn’t change that reality. How can you possibly attract short-term patients and deliver optimal outcomes on those data points without exceptional (sufficient & effective) PT/OT/ST? I don’t see it. Nevertheless, I would anticipate rehab companies and rehab departments to drive more efficiency — cutting out the gray-area treatments that milk the minutes but are not the most effective/efficient methods. How are outsourced rehab companies preparing for this? Are they going to continue to charge the same way or will they develop new metrics?
I think we’ll develop new rules of thumb for rehab hours and dollars per patient day (PPD) like we have for nursing today. Nursing minutes are not part of the reimbursement formula today, like rehab minutes are not part of the formula under RCS1. Today, we see some Medicaid-dominant facilities staffing nursing at 2.8 hours ppd. High-acuity, short-term facilities may staff around 4.5 hours ppd. What’s the regulator for staffing the cost-center known as Nursing? Patient need/outcomes. I believe we’ll see rehab staffing in facilities in a similar way.
What about investors & valuation?
My focus so far has been at the operator/facility level. But how will underwriting and valuations of facilities change in 2018 and 2019? I think it’s safe to say, our current underwriting models will need major updating if RCS-1 goes through as proposed.
Monkeys are the “leading cause of death” of new leaders.
Recent conversations with a few new(er) leaders about this common pitfall, prompted me to post this here. If you don’t have time (28 min) to watch this, then you probably really need to watch this. 😉
This time management concept saved my professional life.
After about 7 years in operations of skilled nursing facilities at The Ensign Group, a skilled nursing, seniors housing, home health & hospice, and radiology company, I spent 5 years there as the Chief Human Capital Officer. What an exciting time. Ensign’s “First Who, Then What” approach to growth meant we had to attract and train a lot of AITs into facility-level CEOs fast. Over those 5 years, I personally participated in the training of about 100 new leaders. Week long boot camps, case studies, online tests, conference calls, assignments, analysis, etc. I saw, up close and personal, what helped new leaders succeed … and fail.
Monkeys has a lot to do with both.
I’ve trained the topic to groups in the hundreds at association conferences to 1:1. And, I wrote about monkeys years ago here:
But, this is the video that gives a thorough explanation of Monkeys and that my colleagues and friends have found most useful to understand the time management concept from theory to practical application. While there are several healthcare operations and Ensign references, the principles are universal.
Over 440,000,000 views on Youtube?! The Scorpions’ Wind of Change music video (below) has been viewed a lot. It’s probably not the best anthem for the post-acute world, but the title sure seems to fit. If there’s anything that’s constant for skilled nursing providers, it’s that things are always changing.
CMS is reducing the number of CJR markets from 67 to 34
It’s critical that operators who are currently being affected by the CJR program to get in touch with their hospitals to discuss what, if any, impact this will have on how the hospital is operating or is preparing to operate vis-a-vis these patients.
Skilled Nursing groups are applauding the news. IF this gives providers more time to get their BPCI act together, then that’s great. But, the point is … they still need to act like BPCI is coming. BPCI behavior that better health plans and hospitals are looking for is:
Proactive communication around readmission and outcomes
Integration of hospital’s modalities into the SNF
Strong reporting systems
Proactive cost containment (shortening length of stay if possible)
Partnering with the best home health agencies who understand BPCI as well
Investors are looking for operators who are not just fluent in BPCI but has already (or is actively) implemented those BPCI Behaviors.
RUG IV to RCS1
In my opinion, a much bigger wind of change, if implemented on October 1, 2018 as targeted, is the shift from RUG IV to RCS1. I attended a conference on that last week by Zimmet Healthcare Services Group in Atlantic City, NJ.
According to Mark Zimmet (https://www.zhealthcare.com/), the announced pre-rule for RCS by CMS (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/therapyresearch.html) earlier this year will dramatically change the way SNFs are operated — specifically replacing the REHAB/Minutes economic engine of operations with a Patient Characteristics economic engine. Now, Medicare A reimbursement is driven mostly my rehab minutes (type and quantity). In the proposed RCS 1 model, rehab minutes are completely excluded from the calculation. There is a PT/OT and an ST component in the formula. But, minutes are NOT part of it. In other words, under RCS 1, the facility will be paid the same amount for Patient John Doe whether the SNF provides 10 minutes of therapy or 1,000 minutes. Panelists predict therapy spend will shrink AT LEAST 50%.
The driver of reimbursement shifts away from rehab minutes to patient clinical characteristics. RCS starts with WHY is the patient here. Which of the 10 categories?
Major Joint or Spinal
Orthopedic Surgery (Except Major Joint)
Cardiovascular & Coagulations
Then, it looks at the functional and cognitive scores, co-morbidities, non-therapy ancillaries.
The change isn’t final and may very well change before it’s implemented.
There’s time to recalibrate your structure and competency to hit the ground running if/when the change is made.
I would be talking now with your rehab provider about this. The message from this conference is that Rehab Co’s in skilled nursing are Dead Man Walking.
Stay up to date on the CMS conference calls, updates.
If RCS 1 is implemented as structured today, I would expect the use of therapy services to change and be reduced. In a word, I believe therapy will be more EFFICIENT. Unfortunately, CMS now incentivizes inefficiency since providers are paid for the minutes they take to deliver therapy. Does this get abused? Sadly, yes. Do we sometimes see a patient who needs rest to recover from illness get dragged into the rehab gym to get our minutes in? Sadly, yes. I’m totally open to viewpoints on this … Is this better for the patient or worse? Can you see operators cutting the newly labeled “cost center” of rehab and giving less than what the patient could benefit by since Medicare isn’t paying for minutes anymore? I can. But, I can also see operators providing a lot of therapy (but still less than before) under RCS 1 since they’re ultimately judged based on outcomes. Almost all admissions to SNFs now are for short-term rehab to get strong enough to go home. If you cut rehab to save money, you might benefit in the very short-run, but after a couple months, your readmission rate and patient satisfaction and length of stay will suffer. I can’t imagine a world without Rehab being an essential part skilled nursing, RCS 1 or not.
So, look at Nursing under the RUGs system. Nursing minutes/hours are not currently reimbursed — like rehab won’t be in the future. The way operators staff their nursing departments, I believe, will be a predictor of how they staff their rehab departments under RCS 1. Some Medicaid shops run as lean as possible b/c there simply isn’t enough revenue to support more. Yet, short-term rehab shops, staff way higher than state minimums because quality care/outcomes/readmission rates/etc. demand it. I believe that will be the case for Rehab.
CMS is infamous for unintended consequences. They consistently underestimate operators ability to quickly adapt to the moving goal posts. So, while CMS predicts this will be budget neutral, I wouldn’t be surprised if it resulted in an increase in Medicare spend (and bottom line performance for SNFs), resulting in quick adjustments like we saw in 2011 and 2012.
Here are 3 videos I took of the presenter going through the calculator that shows the new formula at work (note: no input in the new calculator for minutes):
At the last NIC in Dallas, I caught up with an owner/operator of mid-market seniors housing. He has successfully made the transition from owning and operating hotels to assisted living and memory care. We talked a bit about his hotel business and I found an interesting corollary to how I look at investing in the assisted living space.
There have been a lot of concerns about oversupply in seniors housing. Newly developed and opened properties take market share from competition and both REITs (particularly those in RIDEA deals) and operators struggle, at least in the short-run, until occupancy stabilizes again. I get asked this question a lot, “how are you looking at the over-supply concern?” I like the question because it provides a forum for talking about the mid-market, B to B+ quality properties that is generally ignored by other REITs. The beauty of investing in the mid-market seniors housing segment is
you avoid the new construction pressures as the vast majority of new supply is A to A+ quality with all the bells and whistles, and
if you invest primarily in secondary markets you further protect yourself from new construction risk.
In addition, the demand for quality seniors housing at the $3,500/month vs. $6,500/month (depending on the market) price point is huge and growing. There’s a recent housing study by Harvard that highlights the growing supply/demand disparity for lower-income seniors housing. So, to invest in a Ritz Carlton or Holiday Inn? There’s certainly a market for both. My recovering hotel investor friend in Dallas shared his experience, “I’d convert the hotel into a Holiday Inn; put out some coffee, juice, and bagels in the morning and you’re good.” Luckily for investors and residents who choose to live there, there are quality operators who have figured out the recipe for providing a great place to live and work at an affordable price.
McKnight’s is a leading skilled nursing industry news source that I’ve written for in the past. This is my first guest column since moving to the REIT side of the business. We meet with investors and analysts a lot and one of their most pressing questions lately is around bundled payments/comprehensive care for joint replacements (CJR) so I wrote about my take on it for McKnight’s. Click on the article below to read the full text.
Or read it below …
“What’s your take on bundled payments?”
About a year ago, investors and analysts would occasionally ask us some form of that question. Now, virtually every time we talk with investors, analysts, and bankers, they ask. At the end of answering questions on the topic for 45 minutes during one of these recent meetings, the investor laughed and incredulously said, “So, basically you’re the only ones saying, ‘No big deal. Nothing to see here. Business as usual.” Well, yes. And, no.
There’s a lot of hand-wringing in the post-acute world these days as observers try to predict just how material the constant changes to reimbursement will be for the operators. It seems generally believed that bundled payments expansion is a net-negative for the industry since it partly exists to lower Medicare payments. There will be “losers” who don’t adapt to the changes. But, there will also be “winners.” There always have been. As a former operator and current investor in the space, I have a positive view on what these changes mean for the profession.
Context Is Key
I entered the skilled nursing profession as an administrator-in-training at The Ensign Group in California in 2001. Back then, one of the first themes I picked up on from the seasoned ED/DNS/DORs around me was that, “this isn’t your grandmother’s nursing home anymore.” “No, you see, while we still provide long-term custodial (I will always hate that term) care, we now specialize in providing short-term rehabilitation for Medicare and HMO patients.”
For the last 15 years, the best operators have been adapting to the demands of the hospitals (higher acuity, readmission rates), CMS (MDS/RUGS changes, 5 star ratings, compliance), and HMOs (shorter length of stay, case management, collaboration).
“So are you worried about this Joint Replacement thing?
On April 1, 2016, the Comprehensive Care for Joint Replacement (CJR) went into effect in 67 markets. Briefly, the CJR holds the participating hospitals financially responsible for the episode of care from the day of admission until 90 days later for major joint replacement or reattachment of lower extremity joint replacements (LEJR), hips and knees. If a hospital can lower the cost of that 90 day episode of care below targets set by CMS, they will reap the financial rewards with a bonus. The opposite is also true. Some warn that allowing hospitals to waive the required three night hospitalization before discharging CJR patients to SNFs rated 3 star or better will crush the 1-2 rated facilities. Others warn that hospitals will be incentivized to send CJR patients directly home with Home Health, bypassing SNFs altogether, because of the cost savings. In my opinion, these predictions have been overblown. The sky is not falling.
Now sing it with me … “You Tell Me That’s It’s Evolution”
I understand why outside observers worry that this as a seismic shift for skilled nursing (and HH for that matter). How, then is CJR not the end of the world for post-acute facility providers? Again, I see CJR as a positive step for post-acute care because it advances trends that level the playing field for stronger operators, ultimately benefiting the patients. Here’s what I mean.
Length of stay: HMOs have been pressuring SNFs to shorten length of stay for many years. The last facility I personally ran was 100% short-term rehab. Our combined Medicare/HMO average length of stay was in the mid-teens. Strong providers have been equipping themselves to shorten length of stay for years. They will employ similar practices on these LEJR Medicare patients that they have been using on HMO patients, thus gaining CJR market share from those who don’t.
Case Management/Data Reporting: Try competing in a market where your competitors employ the hospital Discharge Planners as part-time Social Workers on the weekend or pay kickbacks for referrals. What? It happens. Today. I’ve competed against it. The only way we could “level the playing field” was to be BETTER. We had to build strong, data-driven (readmission rates, satisfaction scores, survey results, clinical outcomes) relationships with the hospitals that earned our admissions. We had to reach out to hospitals years before ACOs or BPCI to “show them the data!” How does CJR impact this? It should put a vice on the unethically influenced placement of patients and make the market for post-acute patients more merit based. For the many hospitals that didn’t care about their post-acute discharge system, now they will. Stronger operators are poised to gain CJR market share because of it.
CMS Star Rating: As soon as the star ratings came out years ago, we complained because the system doesn’t necessarily reflect quality care. In the short-run, hospital may use star ratings in their discharge calculus. But, they’ll evolve as well. SNFs who are 1 or 2 stars can still receive joint-replacmenet patients. And, here’s the thing, patients who are ready to be DC’d from the hospital after a night or two have already been heading home with HH for years. Patients that have to go to the SNF have an initial hospital stay past 3 days anyway.
Readmission Rates: At the end of the day, the cost of caring for that patient for 90 days depends greatly on whether or not the patient is readmitted to the hospital. Hospitals are going to be very sensitive to which post-acute location gives them better odds of not having a re-hospitilization. Where would you send them? To the strong SNF provider with 24-hour RN coverage, a medical director, in-house therapists, wound care professionals, etc. or the patient’s home with her elderly husband to care for her in between the hour or so/day she gets from HH. Both graphics below from Avalere, show hospitals the need to partner with SNFs with the lowest readmission rates. It’s no wonder CMS is adding readmission rates to the star rating system this summer.
While there may be a slight tightening on the flow of LEJR patients for the general industry (only for 67 markets for now), the strong providers will be able to capture greater share of that theoretical smaller piece. But, let’s not forget the rest of the pie! Sometimes it seems that outside observers focus so much on the joint-replacement piece of the patient pie that they forget a few key points:
SNFs are taking care of sicker and sicker patients every year (the kind that absolutely require 24-hour nursing care)
Seniors demographics haven’t changed. The numbers of SNF-age patients is growing and will continue to grow for many years to come. While a piece of the pie might shrink, the overall pie will be expanding for years to come.
As a general rule, the highest Medicare reimbursement occurs at the start of the SNF stay, sometimes “stepping down” towards the end. So, as providers shorten length of stay, they may see a slight increase to their average medicare reimbursement rate.
So, what does this all mean for investing in skilled nursing real estate? It has always been true that in healthcare real estate, the operator matters most. The playing field has been changing for the last 15 years. BPCI/CJR actually has the potential of slightly leveling the playing field in behalf of stronger operators. BPCI/CJR can’t be ignored and should be a factor in underwriting acquisitions. Higher lease coverages and cap rates are in order for facilities with lower star ratings and higher readmission rates as those metrics become more and more impactful on a provider’s ability to shift patient mix and capture short-term rehab market share.
Today (and tomorrow), more than ever before, your SNF real estate investment will hinge on the quality, sophistication, and culture of the operator running it.
If you invest in skilled nursing operators or real estate, you’ve seen the almost automatic drop in stock prices with every new “headwind” headline. And, they come frequently. Most recently: RAC Audits, CJR, Bundled Payments, DOJ Investigations. I gotta admit, it’s frustrating to see the stocks move as soon as the weathervane moves. Frustrating, because the best post-acute companies are able to adapt and thrive, or to put int terms of headwinds, they “change tack…”
A keel enables a sailboat to sail diagonally into the wind. As the sail moves into the wind, it “feels” a faster wind on its face. This is called the relative velocity of the wind with respect to the sail. A wind of larger relative velocity exerts a larger force on the sail, which accelerates the boat. The boat moves faster, which increases the relative speed of the wind, which increases the wind-force, which accelerates the boat, and on and on. However, the resistance of the water slows down the motion of the boat. Eventually, a balance is reached between the force of the wind and the force of the water, and the boat moves at a constant velocity, diagonally into the wind. That final constant velocity may be greater than the wind velocity with respect to the water. Whether a boat could reach such final velocity will depend on the characteristics of the boat. [source]
Can a sailboat sail forward against the wind? Yes. You need a great captain and crew who know how to adapt, “change tack,” and move forward. In a boat race, is there a huge difference in the boats themselves? Not so much. It’s the captain and crew you’re betting on. Not just the collection of their individual talents but their chemistry. Headwinds in skilled nursing provide more opportunity for the best SNF crews to differentiate themselves from the also-rans .
Because of the risks (headlines, stroke of the pen, state budgets), investing in skilled nursing facilities commands a higher, risk-adjusted return than almost any other real estate investment. It’s not for the faint of heart. The security of the rents produced by skilled nursing is more a function of the culture, engagement, and sophistication of the operator than of the latest wind of change.
Does the size of the boat matter? Not as much as you might think. When there was a seismic shift to the industry in 1999 with the move from a cost plus basis to a prospective payment system (PPS) several of the very large, “more sophisticated” operators failed to move quickly. It appears that their size, bureaucracy may have prevented them from changing tack quickly enough. On the other hand, often times smaller operators lack the resources and sophistications to change tack as well. So, it is less about the size of the company and more about the management teams and the culture/structure of their companies that will predict their ability to move forward.
There are two headlines I saw today that would suggest some tailwinds are in store for a change.
When I was in High School, my buddies and I listened to a new, up-and-coming, cocky sports talk radio guy, Jim Rome. He constantly played his verbal trump card against people critiquing successful players/teams. He would simply respond by saying, “Scoreboard!”
Does anyone have a better scoreboard than John Wooden? The best coach in sport. Scoreboard? 10 national championships at UCLA. But, why do I love and respect and listen to the man? Because of how he won. Coach Wooden came to mind today because of a conversation with another guy who’s the “best” at his sport, my friend David Howell, a facility CEO for The Ensign Group in southern California. In my opinion, Howell’s one of the best SNF EDs in the country. It’s almost unbelievable to see what he’s built out of his small SNF in a very blue-collar neighborhood. His facility won Ensign’s highest total quality award today and he shared with me what he was planning on saying at the ceremony … Wooden, “C.S. Wooden” 😉
I want to share these two thoughts from a talk Coach Wooden gave and that Howell shared today as well. But, you really ought to watch the whole talk below.
Winning is not in the definition of success. Here’s what C.S. Wooden said success is: “Peace of mind attained only through self-satisfaction in knowing you made the effort to do the best of which you’re capable. I believe that’s true. If you make the effort to do the best of which you’re capable, trying to improve the situation that exists for you, I think that’s success, and I don’t think others can judge that; it’s like character and reputation — your reputation is what you’re perceived to be; your character is what you really are. And I think that character is much more important than what you are perceived to be. You’d hope they’d both be good, but they won’t necessarily be the same. Well, that was my idea that I was going to try to get across to the youngsters.”
This. Poem by George Moriarty, called “The Road Ahead, Or The Road Behind.” “Sometimes I think the Fates must grin as we denounce them and insist the only reason we can’t win, is the Fates themselves have missed.
Yet there lives on the ancient claim: we win or lose within ourselves. The shining trophies on our shelves can never win tomorrow’s game.
You and I know deeper down, there’s always a chance to win the crown. But when we fail to give our best, we simply haven’t met the test, of giving all and saving none until the game is really won;
of showing what is meant by grit; of playing through when others quit; of playing through, not letting up. It’s bearing down that wins the cup.
Of dreaming there’s a goal ahead; of hoping when our dreams are dead; of praying when our hopes have fled; yet losing, not afraid to fall, if, bravely, we have given all.
For who can ask more of a man than giving all within his span. Giving all, it seems to me, is not so far from victory. And so the Fates are seldom wrong, no matter how they twist and wind.
It’s you and I who make our fates — we open up or close the gates on the road ahead or the road behind.”
Congratulations to David, Lito, and the entire Brookfield team. You’ve been a stunning SUCCESS for many years before winning the Flag today.
I just finished a two-day non-deal roadshow. Princeton, Philly, and Boston. Now headed south for a property tour of a couple buildings we have under contract. As usual, the insititional investors we met with were impressive. Everyone has their investment “box” that they’re trying to see if we fit in. This trip, we spent a fair amount of time educating analysts and portfolio managers on the some of the fundamentals of the skilled nursing business. That got me thinking it would be helpful to provide a high-level intro to the business for investors wanting to get up to speed on the basics.
20 Years of History in 175 words
Skilled nursing facilities exist to provide 2 types of healthcare:
“Custodial” (worst term ever), long-term care for “residents” who live in the facility and
Short-term rehabilitative care for patients who are transitioning from hospital to home.
Historically (20 years ago), a “nursing home” or skilled nursing facility (SNF) was where grandma went to live the rest of her life if she needed more assistance with activities of daily living (ADL) than she could get living alone or with family. For the last 20 years there has been a massive shift in the purpose of SNFs. With every passing year, they have focused more on caring for higher acuity (clinically complex), short-term rehab patients. The patients in the SNFs’ rehab units today were treated in acute hospitals 20-30 years ago.
Hospitals and health plans (HMOs) are incentivized to lower the cost of healthcare by reducing the time of inpatient care, thus hospitals have been pushing higher and higher acuity patients out faster and the stronger SNF operators have equipped themselves to meet that demand.
Who Are You?
To understand why SNFs have been willing to adapt to meet the demand of sicker, more clinically complex post acute care (PAC) patients, let’s take a look at the universe of possible patients a SNF cares for …
Medicaid is healthcare for the poor. In a SNF, Medicaid pays room & board and medications for long-term residents. Generally speaking, these are NOT the “patients” in the facilty receiving physical therapy (PT), occupational therapy (OT), or Speech therapy (ST). Rather, they live there. It’s their home. Medicaid reimbursement varies by state. Some pay a fixed rate. Others pay based on a case mix index (CMI). The CMI states recognize that the amount and cost of care for all Medicaid residents is not equal. The more assistance a resident requires, the higher the CMI, and therefore, the higher the reimbursement. Medicaid reimbursement is the lowest of any type within a SNF.
Medicare is healthcare for seniors (65+). In a SNF, Medicare pays for short-term rehab for patients who had to be in the hospital for at least 3 nights. These patients are usually receiving “Skilled Services” from therapists (PT, OT, ST), and/or from nurses (IVs, tracheotomy care, wound care). The length of stay (LOS) could be anywhere from less than a week to 100 days (Medicare covers 100 days of a SNF stay) depending on the the patient’s needs and prognosis for improvement.
Managed Care or HMO, like Medicare, pays for the same short-term rehab skilled services. These patients are Medicare eligible people who have signed over their Medicare benefits for a Medicare-replacement type of insurance product offered by health plans like Aetna, Kaiser, etc. The reimubursement is lower than Medicare (though in some cases the HMO rates pegs to Medicare rates). And, because it’s “managed” care, case managers at the HMO push on SNFs to care for these patients faster. HMOs make more money if the length of stay is shorter since inpatient care costs more than care provided in the home (home health, HH).
There are also Private Pay residents. Expect this to be a shrinking piece of the census pie as assisted living facilities have continue to adapt to provide more assistance today than 20 years ago as well.
Now, let’s take a look at a hypothetical facility through financial eyes.
Let’s call it Dave’s Rockin’ Rehab Facility (anything other than Dave’s Gardens, Village, or Manor, please!). The vital statistics are these:
100 bed facility with the following mix of residents and patients
50 Medicaid residents
20 Medicare patients
10 HMO patients
Now, let’s do some simple math.
50 Medicaid residents x $180/day x 365 days/year = $3,285,000
20 Medicare patients x $525/day x 365 days/year = $3,832,500
10 HMO patients x $420/day x 365 dats/ year = $1,533,000
Skilled mix (percent of patients on “skilled services” aka short-term rehab patients aka Medicare + HMO divided by total census)
Daily rates (Medicare RUGs/ADLs — we’ll cover this another time; private pay — again, a shrinking % of the SNF census and so less of a lever than in assisted/independent living/memory care)
Labor — staffing efficiently
Expense controls for purchasing
Investors New to Skilled Nursing
Needless to say, there’s a lot that goes into efficiently operating a high skilled mix, profitable facility. This isn’t your grandma’s nursing home. Or Buick. And, there’s a huge difference between the blue-chip operators like The Ensign Group and folks still clinging to maintain the status quo from 20 years ago. I frequently see small owner/operators deciding to sell their facilities because they realize they haven’t kept up with the constant changes and it’s too late (or they’re too tired) to re-tool.
There are over 15,000 skilled nursing facilities in the country.
Somewhere around 25% of those are owned by large chains.
And, somewhere around only 20% are owned by REITs.
It’s a very fragmented industry that has been under pressures to provide better, faster, and cheaper care to sicker and sicker patients. That trend has been accelerating over the last couple years with bundled payments (I’ll write about that soon). The only thing that hasn’t changed is that the operators (of all sizes) who are sophisticated, engaged, and committed to quality care are able to adapt to the changes and win and those operators (of all sizes) who don’t adapt, lose.
I just thought of a scene from Dances With Wolves. Not because it takes place at “Fort Sedgwick” — though can there be a better reason? Not, because it inspired me to write this. But, because it’s been too long since I’ve written here.
“Why don’t he write?”
As a facility executive director and chief human capital officer at The Ensign Group for 13 years, there seemed to be endless material to write about. Since moving to the investing/financing side of Seniors Housing/Healthcare, I haven’t taken the time to write as often as before. But, I think that’s going to change.
I get asked regularly by analysts, investors, bankers, and other industry observers what I think about the constant breaking waves of news and changes in the skilled nursing business. Candidly, I’m frequently disappointed to see the over-reaction to those headlines by the market (and even by other REITs). Industry observers are quick to declare the death of the skilled nursing operators. It seems like there’s been some headline to that effect every year for the last 15 that I’ve been in the business. I add my voice to Mark Twain’s off-misquoted correction …
I remain as bullish as ever on skilled nursing because the best operators always find a way to adapt and thrive while the weaker ones fall. And, not that it takes one to know one, but it certainly helps.
Topics on the table right now include: Changes to the 5 star program, CJR (Comprehensive Care for Joint Replacements), Bundled Payments, ACOs, etc.
I started writing here over 8 years ago to share the many lessons learned from my own and others’ experiences (failures and successes) in skilled nursing and seniors housing management. One thing that I saw in myself and others in our industry, repeatedly, was the lack of any semblance of balance. Running facilities 24x7x365 can take its toll on your life (professional, personal, health, spiritual, relationships, etc.) … if you let it. And, its fairly easy to let it. In fact, if you’re not deliberate with how you allocate your time, you naturally sacrifice the important for the urgent. So, also about 8 years ago I made major changes to my diet (90:10 90% whole food plant based, 10% not) and got more serious/consistent with running, riding, and eventually triathlon. Things have progressed since then …
I first wondered about attempting an Ironman when I was around 10 years old and I saw the footage of the world championship on Kona, like these.
Fast forward to 2010, Jess and I flew to Kona, HI for my first 1/2 Ironman. I shared that experience here. That was a big deal for me, athletically and psychologically. After that race, completing a full Ironman seemed more possible and impossible at the same time. At the end of the 1/2 I was completely spent physically and emotionally. I just could not imagine doing double that distance.
Jess made a lot of sacrifices to enable me to commit to the training needed to do the 1/2. About 12 months ago, she knew what she was getting into when I asked her how she felt about me doing an Ironman in 2015. She knew how important it was for me and she knew it meant I would be gone every morning before she woke up; that she would be getting the kids ready for school on her own; and, that Saturdays would be more difficult for her and the kids as I put in my longer training days then. In spite of all that, she was positive throughout. I really don’t remember one time when she expressed any resentment or frustration over the following 12 months.
Because I was so intimidated by the distance, I hired a coach based in Boulder, CO to get me ready. She told me what to do every day and how hard to go. I was surprised how much low intensity work she gave me. She emphasized low intensity to train the body to burn fat for fuel and to create a cardio engine that could go all day. She made sure I didn’t overtrain which is probably the biggest risk for first timers like myself — scared of not being fit enough.
I spent the long winter and spring of 2014/2015 in the basement on my bike trainer and treadmill and at the YMCA pool. The progress was slow and steady. The key was consistency. Every day, putting in the work. Every morning, I would drop Madi off at Seminary and then train for 2-3 hours.
My work requires a lot of travel. I have my pools and gyms in New York and Chicago and would always look for hotels near gyms during the cold winter months.
About 4 weeks before the race, I crashed on my bike. I was at hour 6 of a 6 hour training ride. I was coming down a sharp corner too fast and struck something that caused the bike to slip under me and me to hit the pavement going about 20mph. Road rash on my ankle, knee, hoop, elbow and and cracked my helmet. Whiplash followed for a week. Then, a soreness in my back rib joint became more and more severe. It was painful to breathe hard, cough, and sneeze. Breathing became difficult during runs. I went to PT and to the chiropractor a few times. The chiropractor thought I might have a cracked rib but that I definitely had injured the soft tissue and cartilage in the joint. A week before the race, I was feeling worried that the injury may inhibit my ability to complete the race. Not only did I have the injury but I also was sick. I attended the Spanish Branch and asked the Branch president, Chris Trimble, a friend of mine, to give me a blessing. I felt hopeful.
A hurricane warning caused the race to be cancelled and postponed by two weeks. This turned out to be a blessing as it allowed me more time to recover and be ready for race day.
The day before the race, Caleb drove out to Cambridge with me to help me check-in and get ready. I loved being with him, talking about the many facets of the race. We had our big pasta dinner together that evening before the rest of the family joined us at the hotel. I got to bed at about 10:30pm and, predictably, had a restless night, waking up every couple hours. I woke up at 4:30am, ate my peanut butter, honey, and banana sandwich and got dressed. Jess took me to the race and kept me relaxed up until the swim start.
Why did I commit to doing an Ironman?
I wanted to give my children an example of becoming the best you can be; of doing hard, positive, stretching things.
I wanted to test/push my own limits. Being a competitive athlete has been an important part of my self-identity since I was a child.
During my mission I decided to not continue with basketball at BYU because my perspective on life had changed significantly during my mission: I realized I wasn’t going to play professionally and that I needed to take the massive amount of time that basketball demands and allocate that to preparing for the rest of my life. Also, I saw, during my mission, more forcefully, my own pride and how playing basketball was a pride-fueling endeavor.
After several years of marriage and beginning a career in healthcare management, I filled the basketball void with triathlon. I felt like replacing the competition with others inherent in basketball with competition with myself inherent in triathlon was positive and I found that I enjoyed the sport — even if I was very slow.
Turning 40 in 2015 was a motivation as well. Since making major diet changes about 8 years ago to predominantly whole food plant based, I became more serious about my health and fitness. I was motivated by the idea of being able to honestly say that the year I turned 40 I was in the best shape of my life.
Windy and cold. Wind chill air temperature of 32 degrees at 6:30am. Water temp was 63 degrees.
The wind was strong and constant and caused a small watercraft advisory which forced them to modify the swim to 3,000 meters. Because of my ribs issue I didn’t do a lot of stretching or warming up. I tried to relax. Jess was there with me which was awesome. The start got pushed back to 7:30am and then it started. I put myself in the 1:30hr swim speed group. The water was cold but not bad. After about 2 minutes I was surprised that I hadn’t lost my breath, which I normally do at the start of the swim before I can settle in to a rhythm. This time, I took it easy and found my rhythm right away. The water was very choppy at times. Other times there felt like small sets rolling in. But, I think what was most notable was the collisions. There was the normal feet and hands bumping into each other, but I also got struck in the face a couple times. It didn’t bother me, but I had to adjust the goggles a couple times.
The water was actually pretty clear, though visibility was limited by the early morning light and churn of athletes. I found myself passing people pretty regularly. Spotting was good. I sort of wandered off the line during one stretch where my mind starting wandering too. I swam aggressively around the buoys and to pass people who were slowing me down. But, I kept my breathing easy the entire time, never really pushing my pace. I really enjoyed those few stretches where I could really use my best form and just motor along. About half way through the swim I realized that my back/ribs were not sore at all. I could stretch and pull without limits. We have a saying in my family, “The Lord is the best,” and that’s exactly what thought as I realized He had answered so many prayers (and the blessing I received) that I would be able to complete the race (the day before, my back/ribs, were as sore as ever but I barely felt them throughout the entire race). I finished the swim feeling fresh and ready to get out of that wetsuit.
T1 took forever b/c of my frozen fingers. Due to the cold weather, I decided to wear my compression socks for the ride and run. They’re hard to put on in normal conditions, but with frozen fingers, it took me a long time. I just stared at my fingers trying to get them to move. I wore an extra pair of wool cycling socks on top of my compression socks (it took the entire ride before I could move all my frozen toes again). I also put on arm warmers, gloves, and a sleeveless windbreaker. Under my helmet I had a gortex cap.
I got a Retul bike fit done the Monday before the race. I know it’s not the smartest to tinker with bike fit that close, but the vast majority of my training was done on my road bike and I’ve always felt that my tri bike didn’t fit as well as it should. Plus, I was worried about being in the aero position so long with my back injured. So, I got it done, and they actually adjusted quite a bit. They brought my seat up and forward and raised my handlebars and pulled my aero sticks way forward so my arms rested on my elbows instead of my forearms. I did one 6mi ride on Wednesday around my house to feel it out and it felt fine so I went with it. I’m glad I did as I felt more comfortable in the aero position than I normally do.
The wind was murder. There were a couple times I just sort of laughed at how crazy it felt to grind into a 30mph headwind. It felt like we had a tailwind for about 1/3 of the race and the rest was cross wind or head wind. During the run, an 8x ironman told me this was the hardest bike he’s ever had. I focused on my heart rate, keeping it as low as possible while maintaining a 20mph pace. Most of the time I think I was at about 130-135 hr and 20mph. The special needs bag at the half way point was huge for me. Jess surprised me by putting in a bracelet with a scripture that has been a theme of ours for years: Look unto me in every thought, doubt not, fear not. I put it on felt a surge of emotion and shed a few tears. She also put in a bag of salt & vinegar potato chips and fresh fruit. I downed about a cup of pineapple, watermelon, honey dew, stuffed the chips in my shirt pocket and headed off for the second half of the ride. I immediately tore into the chips and was in heaven. The salt and flavor of those chips were exactly what my mouth/body needed. I spent the next 5 minutes in the aero position, just taking small bites of those chips. Then, I remembered my coach’s advice to stop at the special needs bag even if you don’t need it at the time b/c you might need it at mile 90. I thanked her for the advice and stuffed the bag away for mile 90. I brought them back out at mile 90 and savored every bite.
I said I didn’t feel any pain but that’s not right. My neck, as usual, was in severe pain from keeping it up in the aero position so long. I finally found a way to alleviate the pain while staying aero and that was to prop my chin in my hand (sort of like a thinker’s pose) with one hand while keeping the other hand on the aero handlebar. I’m sure I got some funny looks as I passed people propping up my head, looking like I didn’t have a care in the world. Today was definitely a day where not being allowed headphones or drafting off others was relevant. I saw a lot of guys get penalties for drafting. Mentally, I mostly zoned out. I wasn’t in pain and wasn’t pushing very hard so I just sort of went on cruise control mentally. The wind is what had my attention most of the time and trying to balance my effort with conditions with the need to save up for the run. My only worry on the bike was getting a flat tire and fortunately, that never happened.
My whole family was there for T2 and that was a big lift and exactly what I needed before the marathon. I took some time with them at the start and end of T2. I changed from my bike bibs to my normal tri shorts and headed out.
I was surprised by how fresh my legs felt right away. I was expecting a few miles of really heavy legs but they actually felt fine and ready to go right away. I kept in mind my coach’s advice to start out really slow/easy and so I did. Instead of looking at my heart rate, I focused on my splits and just tried to keep them around 10mi/min pace as long as it felt easy. The first 5 miles went by quickly and I felt good and thought about going faster. Instead, my legs started to really tighten up (my left IT band/quad/knee) and I started to “feel” different parts of my legs from time to time, which caused me to slow down and be more conservative. My only fear on the run was that I would pull, strain, or cramp and then have to walk/shuffle for a long time.
As far as fuel goes, the aid stations had two things that I hadn’t thought of before but found my body craved: ruffles chips and chocolate chip cookies. I only drank water and had either chips (mostly) or cookies practically every aid station. When I had 8 miles to go, I had my lowest point. 8 miles isn’t a lot, but by that point, I did not feel like running another 8 miles. I started chanting “Look unto me in every thought, doubt not, fear not” in my head to bring positive thoughts back and, of course it helped.
As the sun was beginning to set I saw Jess and my kids. She asked me how I was doing, and I said, I’m dead. She said, “don’t quit! you’re so close!” and that actually helped a lot. I was so close. When I got to mile 21, I got new life. 5 miles is just 2.5 out and back! My legs were tight and sore. I finally pulled over and stretched on a bench and it was like a miracle. I felt great. I kicked myself for not doing that hours earlier. The tightness and pain was gone and I started to speed up.
With one mile left, I let it go and ran about a 8:30ish min/mile. Adrenalin/emotion had taken over. It was an emotional last mile as the crowd was big and loud and I realized I would finally achieve a goal I wondered about since I was a kid. With about 100 yards to go, I spotted my son Caleb running towards me. I said, “I think it’s time, buddy,” and he agreed. He ran with me, weaving in and out of spectators to the side of the course as I sped up and held back the tears, crossing the finish line.
I felt so relieved, happy, proud, and grateful. My whole family was there in the cold cheering for me and proud of me (with shirts that have a quote of ours that says, “the pain of discipline is far less than the pain of regret.” I hoped to set an example for my kids to do hard things and stretch in life and I’m sure they’ll never forget that day. Neither will I. I still have some reflecting to do to learn everything the last 12 months have to teach me.
I told a few people before the race that I would be absolutely stoked if I finished under 13 hours and content if it was under 14. I finished 11:47* Needless to say, I was stoked.
Times: http://www.ironman.com/triathlon/coverage/athlete-tracker.aspx?race=maryland&y=2015#axzz3pmZXvhw8 enter bib: 1915 for my times.
Endure to the end doesn’t mean to stand still and hold on. It means to keep moving forward, regardless of the conditions.
Momentum is a very real force in my life. Just like in a basketball game, the same is true about our health/fitness/discipleship/spirituality/marriage/etc… the wind can feel like its at our back or in our face and the momentum can change in a moment. The word moment starts the word momentum because momentum can change in a moment. In a moment of choice, we can turn momentum in our favor.
Life is short. You lose a father and best friend early in their lives and mortality and the sense of time we have on earth changes. Early in my training, I was riding by one of the many historic churches and cemeteries here in Maryland. The carpe diem scene from Dead Poets Society flashed and I envisioned the souls buried there were yelling at me, “Go!, Run while you still can! Don’t stop! Life is short!” Those thoughts powered me through much of my training and race.
Endurance is achieved through a steady, sustainable heart rate with sufficient fuel. If you go too hard, too fast, you flame out/bonk. If you fail to eat and drink enough, you stop.
After my half ironman in Provo this summer, I had a flash of thought and emotion as Jess and I drove up to SLC to catch our flight home. It was a hot day. Every aid station had ice cold water and the effect of the water on my thirst and my overheated body was powerful. I thought of this, in John 4:13-14
13 Jesus answered and said unto her, Whosoever drinketh of this water shall thirst again: 14 But whosoever drinketh of the water that I shall give him shall never thirst; but the water that I shall give him shall be in him a well of water springing up into everlasting life.
Build up endurance through daily, consistent work
Negativity is your enemy. Pres. Packer’s “your mind is a stage” … chanting Look unto me in every thought, doubt not fear not replaced the negative, complaining, quitting thoughts that inevitably creep in.
God answers prayers.
Ralph Waldo Emerson was right when he said, “That which we persist in doing becomes easier to do, not that the nature of the thing has changed but that our power to do has increased.”